RUSH STREET INTERACTIVE, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by, our Annual Report on Form 10-K for the year endedDecember 31, 2021 (our "Annual Report"), and our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this "Report"). In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under the sections of this Report captioned "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors." For a discussion of limitations in measuring certain of our key metrics, see the section of this Report captioned "Limitations of Key Metrics and Other Data." This Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain financial measures, in particular the presentation of Adjusted EBITDA, which are not presented in accordance with generally accepted accounting principles ofthe United States ("GAAP"). We present these non-GAAP financial measures because they provide us and readers of this Report with additional insight into our operational performance relative to earlier periods and relative to our competitors. These non-GAAP financial measures are not a substitute for any GAAP financial information. Readers of this Report should use these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures. Reconciliations of Adjusted EBITDA to Net Loss, the most comparable GAAP measure, are provided in this Report.
Unless the context requires otherwise, all references in this Report to the
"Company," "we," "us," or "our" refer to
Our Business We are a leading online gaming and entertainment company that focuses primarily on online casino and online sports betting in theU.S. , Canadian and Latin American markets. Our mission is to engage and delight players by delivering friendly, fun and fair betting experiences. In furtherance of this mission, we strive to create an online community for our customers where we are transparent and honest, treat our customers fairly, show them that we value their time and loyalty, and listen to feedback. We also endeavor to implement industry leading responsible gaming practices and provide our customers with a cutting-edge online gaming platform and exciting, personalized offerings that will enhance their user experience. We provide our customers with an array of leading gaming offerings such as real-money online casino, online sports betting and retail sports betting (i.e., sports betting services provided at bricks-and-mortar locations), as well as social gaming, which involves free-to-play games that use virtual credits that users can earn or purchase. We launched our first social gaming website in 2015 and began accepting real-money bets inthe United States in 2016. Currently, we offer real-money online casino, online sports betting and/or retail sports betting in fourteenU.S. states as outlined in the table below. 21
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Online Sports Retail Sports
Jurisdictions Online Casino Betting Betting
Domestic:
Arizona ü
Colorado ü
Connecticut ü ü
Illinois ü ü
Indiana ü ü
Iowa ü
Louisiana ü
Maryland ü
Michigan ü ü ü
New Jersey ü ü
New York ü ü
Pennsylvania ü ü ü
Virginia ü
West Virginia ü ü
International:
Colombia ü ü
Ontario (Canada) ü ü
Mexico ü ü
Our real-money online casino and online sports betting offerings are currently
provided under our BetRivers and PlaySugarHouse brands in the US and Canada and
under our RushBet brand in Latin America (which includes Mexico ). We operate
and/or support retail sports betting for our bricks-and-mortar partners
primarily under their respective brands. Many of our social gaming offerings are
marketed under our partners' brands, although we also offer social gaming under
our own brands as well. Our decision about what brand or brands to use is
market- and partner-specific, and is based on brand awareness, market research,
marketing efficiency and applicable gaming rules and regulations.
Impact of COVID-19
The COVID-19 pandemic has adversely impacted global commercial activity,
disrupted supply chains and contributed to significant volatility in financial
markets. The ongoing COVID-19 pandemic could have a continued material adverse
impact on economic and market conditions and trigger a period of global economic
slowdown such as a recession. The COVID-19 pandemic therefore presents material
uncertainty and risk with respect to us and our performance and could affect our
financial results in a materially adverse way.
The COVID-19 pandemic has significantly impacted our business. Beyond
disruptions in our normal business operations, the COVID-19 pandemic has had a
continued impact on consumer habits and preferences, with many consumers opting
to avoid crowded public places such as land-based casinos. COVID-19 has also
impacted sports betting due to the rescheduling, reconfiguring, suspension,
postponement and cancellation of sports seasons and sporting events or exclusion
of certain players or teams from sporting events, which has tended to reduce
customers' use of, and spending on, our sports betting offerings.
Most major professional sports leagues have largely resumed their activities in
accordance with their planned schedules. The continued return of major sports
and sporting events has generated significant interest and user activity in our
sports betting product offerings. However, the possibility remains that sports
seasons and sporting events may be rescheduled, reconfigured, suspended,
postponed and/or cancelled due to COVID-19 outbreaks.
Our revenue varies based on sports seasons and sporting events, among other
factors, and cancellations, suspensions or alterations resulting from COVID-19
may adversely affect our revenue, possibly materially. However, our online
casino offerings do not rely on sports seasons and sporting events, thus, they
may partially offset this adverse impact on revenue.
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The future effects of COVID-19 and the related impacts on consumer behavior is currently unknown. A significant or prolonged decrease in consumer spending on entertainment or leisure activities would likely have an adverse effect on demand for our offerings, reducing cash flows and revenues, thus materially harming our business, financial condition and results of operations. In addition, a significant uptick in COVID-19 cases or an emergence of additional variants or strains could cause other widespread or more severe impacts depending on where infection rates are highest. As steps taken to mitigate the spread of COVID-19 have necessitated a shift away from a traditional office environment for many employees, we implemented business continuity programs to help ensure that our personnel were safe and our business continued to function with minimal disruptions to normal work operations while personnel worked remotely. We will continue to monitor developments relating to disruptions and uncertainties caused by COVID-19.
Trends in Key Metrics
Monthly Active Users
MAUs is the number of unique users per month who have placed at least one real-money bet across one or more of our online casino or online sports betting offerings. For periods longer than one month, we average the MAUs for the months in the relevant period. We exclude users who have made a deposit but have not yet placed a real-money bet on at least one of our online offerings. We also exclude users who have placed a real-money bet but only with promotional incentives. The numbers of unique users included in calculating MAUs only includeU.S. andCanada -based users of our online real-money offerings. MAUs is a key indicator of the scale of our user base and awareness of our brands. We believe that year-over-year MAUs is also generally indicative of the long-term revenue growth potential of our business, although MAUs in individual periods may be less indicative of our longer-term expectations. We expect the number of MAUs to grow as we attract, retain and re-engage users in new and existing jurisdictions and expand our offerings to appeal to a wider audience.
The chart below presents our average MAUs for the six months ended
[[Image Removed: rsi-20220630_g1.jpg]]
The increase in MAUs was mainly due to our continued growth in existing markets
such as Pennsylvania , Colorado , Indiana , Iowa , Michigan , Virginia and West
Virginia , as well as our expansion into new markets such as Arizona ,
Connecticut , New York , Louisiana , and Ontario , which had not launched until
after June 30, 2021 . Additionally, we continue to achieve a positive response
from our strategic advertising and marketing efforts.
Average Revenue Per Monthly Active User
ARPMAU for an applicable period is average revenue divided by average MAUs. This
key metric represents our ability to drive usage and monetization of our online
offerings.
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The chart below presents our ARPMAU for the six months ended
[[Image Removed: rsi-20220630_g2.jpg]]
The year-over-year decrease in ARPMAU was mainly due to an increase in the
number of markets where we offer only sports betting (we launched in four new
sports betting-only markets during that period - Arizona , Connecticut , Louisiana
and New York ), which, when combined with our increased promotional and
advertising activities in those markets, resulted in an increase in the number
of customers in sports betting-only markets. Sports betting-only customers
generally generate less revenue per customer than online casino-only customers.
Non-GAAP Information
This Report includes Adjusted EBITDA, which is a non-GAAP performance measure
that we use to supplement our results presented in accordance with GAAP. We
believe Adjusted EBITDA provides useful information to investors regarding our
results of operations and operating performance, as it is similar to measures
reported by our public competitors and is regularly used by securities analysts,
institutional investors and other interested parties in analyzing operating
performance and prospects. Non-GAAP financial measures are not intended to be
considered in isolation or as a substitute for any GAAP financial measures and,
as calculated, may not be comparable to other similarly titled measures of
performance of other companies in other industries or within the same industry.
We define Adjusted EBITDA as net income (loss) before interest expense, income
taxes, depreciation and amortization, share-based compensation, adjustments for
certain one-time or non-recurring items and other adjustments. Adjusted EBITDA
excludes certain expenses that are required in accordance with GAAP because
certain expenses are either non-cash (i.e., depreciation and amortization, and
share-based compensation) or are not related to our underlying business
performance (i.e., interest income or expense).
We include Adjusted EBITDA because management uses it to evaluate our core
operating performance and trends and to make strategic decisions regarding the
distribution of capital and new investments. Management believes that Adjusted
EBITDA provides investors with useful information on our past financial and
operating performance, enables comparison of financial results from
period-to-period where certain items may vary independent of business
performance, and allows for greater transparency with respect to metrics used by
our management in operating our business. Management also believes that Adjusted
EBITDA is useful in evaluating our operating performance compared to that of
other companies in our industry, as this metric generally eliminates the effects
of certain items that may vary from company to company for reasons unrelated to
overall operating performance.
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The table below presents our Adjusted EBITDA reconciled from our Net loss, the most directly comparable GAAP measure, for the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
($ in thousands) 2022 2021 2022 2021
Net loss $ (28,346) $ (13,954) $ (80,616) $ (14,030)
Interest expense, net 223 17 445 30
Income tax expense 2,335 1,752 4,337 2,556
Depreciation and amortization 3,290 914 6,027 1,588
Change in fair value of warrant
liabilities - - - (41,802)
Change in fair value of earnout
interests liability - - - 13,740
Share-based compensation expense 3,880 4,661 7,817 16,237
Adjusted EBITDA $ (18,618) $ (6,610) $ (61,990) $ (21,681) Key Components of Revenue and Expenses
Revenue
We offer real-money online casino, online sports betting and/or retail sports betting in fourteenU.S. states,Colombia , and since the second quarter of 2022,Ontario, Canada andMexico . We also provide social gaming where users are given virtual credits to enjoy free-to-play games.
Our revenue is predominantly generated from our
Online casino offerings typically include the full suite of games available in bricks-and-mortar casinos, such as table games (i.e., blackjack and roulette) and slot machines. For these offerings, we function similarly to bricks-and-mortar casinos, generating revenue through hold, or gross winnings, as customers play against the house. Like bricks-and-mortar casinos, there is volatility with online casino, but as the number of bets placed increases, the revenue retained from bets placed becomes easier to predict. Our experience has been that online casino revenue is less volatile than sports betting revenue. Our online casino offering consists of a combination of licensed content from leading suppliers in the industry, customized third-party games and a small number of proprietary games that we developed in-house. Third-party content is usually subject to standard revenue-sharing agreements specific to each supplier, where the supplier generally receives a percentage of the net gaming revenue generated from its casino games played on our platform. In exchange, we receive a limited license to offer the games on our platform to customers in jurisdictions where use is approved by the regulatory authorities. We generally pay much lower fees on revenue generated through our in-house developed casino games such as our multi-bet blackjack (with side bets: 21+3,Lucky Ladies ,Lucky Lucky ) and single-deck blackjack, which primarily relate to hosting/remote gaming server fees and certain intellectual property license fees. Online casino revenue is generated based on total customer bets less amounts paid to customers for winning bets, less incentives awarded to customers, plus or minus the change in the progressive jackpot reserve.
Online Sports Betting
Online sports betting involves a user placing a bet on the outcome of a sporting
event, a series of sporting events, a sports-related activity or a series of
sports-related activities, with the chance to win a pre-determined amount, often
referred to as fixed odds. Online sports betting revenue is generated by setting
odds such that there is a built-in theoretical margin in each sports bet offered
to customers. While sporting event outcomes may result in revenue volatility, we
believe that we can achieve a long-term betting win margin.
Integrated into our online sports betting platform is a third-party risk and
trading platform currently provided by certain subsidiaries of Kambi Group plc.
In addition to traditional fixed-odds betting, we also offer other sports
betting
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products including in-game betting and multi-sport and same-game parlay betting. We have also incorporated live streaming of certain sporting events into our online sports betting offering. Online sports revenue is generated based on total customer bets less amounts paid to customers for winning bets, less incentives awarded to customers, plus or minus the change in unsettled sports bets.
Retail Sports Betting
We provide retail sports betting services to certain land-based partners in exchange for a monthly commission that is calculated based on the land-based retail sportsbook revenue. Services generally include ongoing management and oversight of the retail sportsbook (i.e., within a bricks-and-mortar location), technical support for such partner's customers, risk management, advertising and promotion, and support for third-party sports betting equipment. In addition, certain relationships with business partners provide us the ability to operate the retail sportsbook at the land-based partner's facility. In this scenario, revenue is generated based on total customer bets less amounts paid to customers for winning bets, less other incentives awarded to customers, plus or minus the change in unsettled retail sports bets.
Social Gaming
We provide social gaming (where permitted) where users are given virtual credits to enjoy free-to-play games. Users who exhaust their credits can either purchase additional virtual credits from the virtual cashier or wait until their virtual credits are replenished for free. Virtual credits have no monetary value and can only be used within our social gaming platform. Our social gaming business has three main goals: building online databases in key markets ahead of and post-legalization and regulation; generating revenues; and increasing engagement and visitation to our bricks-and-mortar partner properties. Our social gaming products are a marketing tool that keeps the applicable brands present in the minds of our users and engages with users through another channel while providing the entertainment value that users seek. We also leverage our social gaming products to cross-sell to our real-money offerings in jurisdictions where real-money gaming is authorized. We recognize deferred revenue when users purchase virtual credits and revenue when the virtual credits are redeemed. We pay a percentage of the social gaming revenue derived from the sale and redemption of the virtual credits to content suppliers as well as to our land-based partners.
Costs and Expenses
Costs of Revenue. Costs of revenue consist primarily of (i) revenue share and
market access fees, (ii) platform and content fees, (iii) gaming taxes, (iv)
payment processing fees and chargebacks and (v) salaries, bonuses, benefits and
share-based compensation for dedicated personnel. These costs are primarily
variable in nature and should typically correlate with the change in revenue.
Revenue share and market access fees consist primarily of amounts paid to local
partners that hold the applicable gaming license, providing us the ability to
offer our real-money online offerings in the respective jurisdictions. Our
platform and content fees are primarily driven by costs associated with
third-party casino content, sports betting trading services and certain elements
of our platform technology, such as geolocation and know-your-customer. Gaming
taxes primarily relate to state taxes and are determined on a
jurisdiction-by-jurisdiction basis. We incur payment processing costs on
customer deposits and occasionally chargebacks (i.e., when a payment processor
contractually disallows customer deposits in the normal course of business).
Advertising and Promotions Costs. Advertising and promotion costs consist
primarily of costs associated with marketing our offerings via different
channels, promotional activities and related customer acquisition costs. These
costs also include salaries, bonuses, benefits and share-based compensation for
dedicated personnel and are expensed as incurred.
Our ability to effectively market is critical to operational success. Using
experience, dynamic learnings and analytics, we leverage marketing to acquire,
convert, retain and re-engage customers. We use a variety of earned media and
paid marketing channels, in combination with compelling offers and unique game
and site features, to attract and engage customers. Furthermore, we continuously
optimize our marketing spend using data collected from our operations. Our
marketing spend is based on a return-on-investment model that considers a
variety of factors, including the product offerings in the jurisdiction, the
performance of different marketing channels, predicted lifetime value, marginal
costs and expenses and behavior of customers across various product offerings.
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With respect to paid marketing, we use a broad array of advertising channels, including television, radio, social media platforms, sponsorships, affiliates and paid search, and other digital channels. We also use other forms of marketing and outreach, such as our social media channels, first-party websites, media interviews and other media spots and organic searches. These efforts are primarily concentrated within the specific jurisdictions where we operate or intend to operate. We believe there is significant benefit to having a flexible approach to advertising spending as we can quickly redirect our advertising spending based on dynamic testing of our advertising methods and channels.General Administration and Other. General administration and other expenses consist primarily of administrative personnel costs, including salaries, bonuses and benefits, share-based compensation expense for dedicated personnel, professional fees related to legal, compliance, audit and consulting services, rent and insurance costs. Depreciation and Amortization. Depreciation and amortization expense consists of depreciation on our property and equipment and amortization of intangible assets (including market access licenses, gaming jurisdictional licenses, internally developed software, trademark, and developed technology) and finance lease right-of-use assets over their useful lives.
Results of Operations
The following tables set forth a summary of our consolidated results of operations for the interim periods indicated and the changes between periods. We have derived these data from our unaudited condensed consolidated financial statements included elsewhere in this Report. The results of historical periods are not necessarily indicative of the results of operations for any future period.
Comparison of the Three Months Ended
Three Months Ended
June 30, Change
($ in thousands) 2022 2021 $ %
Revenue $ 143,736 $ 122,800 $ 20,936 17 %
Costs of revenue 104,882 84,760 20,122 24 %
Advertising and promotions 44,742 37,543 7,199 19 %
General administration and other 16,610 11,768 4,842 41 %
Depreciation and amortization 3,290 914 2,376 260 %
Loss from operations (25,788) (12,185) (13,603) 112 %
Interest expense, net (223) (17) (206) n/m
Loss before income taxes (26,011) (12,202) (13,809) 113 %
Income tax expense 2,335 1,752 583 33 %
Net loss $ (28,346) $ (13,954) $ (14,392) 103 %
*n/m means not meaningful
Revenue. Revenue increased by $20.9 million , or 17%, to $143.7 million for the
three months ended June 30, 2022 as compared to $122.8 million for the same
period in 2021. The increase was mainly due to and directly correlated with our
continued growth in a majority of our existing markets, as well as our expansion
into new markets such as Arizona , Connecticut , Louisiana , New York and Ontario,
Canada , which had not launched until after June 30, 2021 . The increase reflects
higher period-over-period online casino and sports betting revenue of $19.9
million and retail sports betting revenue of $1.1 million , which was partially
offset by a decrease in social gaming revenue of $0.1 million .
Costs of Revenue. Costs of revenue increased by $20.1 million , or 24%, to $104.9
million for the three months ended June 30, 2022 as compared to $84.8 million
for the same period in 2021. The increase was mainly due to and directly
correlated with our expansion and continued growth in existing and new markets.
Gaming taxes, operating expenses, payment processing costs and market access
costs contributed $7.0 million , $6.7 million , $3.2 million and $2.2 million ,
respectively, to the period-over-period increase in costs of revenue, with
personnel costs contributing to the remainder of the period-over-period
increase. Costs of revenue as a percentage of revenue increased to 73% for the
three months ended June 30, 2022 as compared to 69% for the same period in 2021.
Advertising and Promotions. Advertising and promotions expense increased by $7.2
million , or 19%, to $44.7 million for the three months ended June 30, 2022 as
compared to $37.5 million for the same period in 2021. The increase was mainly
due to new and increased marketing efforts and strategies in newly entered and
existing markets to increase
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customer awareness and use of our offerings, such as executing strategic marketing or sponsorship arrangements with the NBA'sNew Orleans Pelicans , former MajorLeague Baseball player and managerBobby Valentine ,Dan O'Toole ,Joakim Noah ,Mike Francesa , theChicago Bears ,Mike Ditka , Field of 68, Field of 12,Mark Schlereth and podcast organizations. Advertising and promotions expense as a percentage of revenue was flat at 31% for the three months endedJune 30, 2022 and 2021.General Administration and Other. General administration and other expense increased by$4.8 million , or 41%, to$16.6 million for the three months endedJune 30, 2022 as compared to$11.8 million for the same period in 2021. The increase was due to higher personnel and other administrative costs, which is consistent with the ongoing growth of our business. General administration and other expense as a percentage of revenue increased to 12% for the three months endedJune 30, 2022 as compared to 10% for the same period in 2021. Depreciation and Amortization. Depreciation and amortization expense increased by$2.4 million , or 260%, to$3.3 million for the three months endedJune 30, 2022 as compared to$0.9 million for the same period in 2021. The increase was mainly due to additional purchases of property and equipment and other definite lived intangible assets. Depreciation and amortization expense as a percentage of revenue increased to 2% for the three months endedJune 30, 2022 as compared to 1% for the same period in 2021. Interest Expense, Net. Interest expense, net was$0.2 million for the three months endedJune 30, 2022 as compared to less than$0.1 million for the same period in 2021. The increase was mainly attributable to the recognition of additional imputed interest associated with the recognition of deferred royalties and the commencement of additional finance leases relating to online gaming servers as we expand into new jurisdictions. Income Tax Expense. Income tax expense was$2.3 million for the three months endedJune 30, 2022 and$1.8 million for the same period in 2021. Income tax expense for the three months endedJune 30, 2022 related to profitability of our foreign operations for which both current and deferred taxes are recorded. Income tax expense as a percentage of revenue increased to 2% for the three months endedJune 30, 2022 as compared to 1% for the same period in 2021.
Comparison of the Six Months Ended
Six Months Ended
June 30, Change
($ in thousands) 2022 2021 $ %*
Revenue $ 278,674 $ 234,620 $ 44,054 19 %
Costs of revenue 204,740 164,447 40,293 25 %
Advertising and promotions 111,591 79,759 31,832 40 %
General administration and other 32,150 28,332 3,818 13 %
Depreciation and amortization 6,027 1,588 4,439 280 %
Loss from operations (75,834) (39,506) (36,328) 92 %
Interest expense, net (445) (30) (415) n/m
Change in fair value of warrant
liabilities - 41,802 (41,802) (100) %
Change in fair value of earnout interests
liability - (13,740) 13,740 (100) %
Loss before income taxes (76,279) (11,474) (64,805) n/m
Income tax expense 4,337 2,556 1,781 70 %
Net loss $ (80,616) $ (14,030) $ (66,586) n/m
*n/m means not meaningful.
Revenue. Revenue increased by $44.1 million , or 19%, to $278.7 million for the
six months ended June 30, 2022 as compared to $234.6 million for the same period
in 2021. The increase was mainly due to and directly correlated with our
continued growth in the majority of our existing markets, as well as our
expansion into new markets such as Connecticut and Ontario, Canada , which went
live after June 30, 2021 . The increase reflects higher period-over-period online
casino and sports betting revenue of $41.6 million and retail sports betting
revenue of $2.9 million , which was partially offset by a decrease in social
gaming revenue of $0.4 million .
Costs of Revenue. Costs of revenue increased by $40.3 million , or 25%, to $204.7
million for the six months ended June 30, 2022 as compared to $164.4 million for
the same period in 2021. The increase was mainly due to and directly
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correlated with, our expansion and continued growth in existing and new markets as noted above. Gaming taxes, operating expenses, market access costs, payment processing costs, and personnel costs contributed$18.6 million ,$11.9 million ,$6.8 million ,$1.7 million and$1.3 million , respectively. Costs of revenue as a percentage of revenue increased to 73% for the six months endedJune 30, 2022 as compared to 70% for the same period in 2021. Advertising and Promotions. Advertising and promotions expense increased by$31.8 million , or 40%, to$111.6 million for the six months endedJune 30, 2022 as compared to$79.8 million for the same period in 2021. The increase was mainly due to new and increased marketing efforts and strategies in newly entered and existing markets to increase customer awareness and acquisition for our offerings, such as the strategic marketing and/or sponsorship arrangements that we entered into with the NBA'sNew Orleans Pelicans , former MajorLeague Baseball player and managerBobby Valentine ,Dan O'Toole ,Joakim Noah ,Mike Francesa , theChicago Bears ,Mike Ditka , Field of 68, Field of 12,Mark Schlereth and podcast organizations. Advertising and promotions expense as a percentage of revenue increased to 40% for the six months endedJune 30, 2022 as compared to 34% for the same period in 2021.General Administration and Other. General administration and other expense increased by$3.8 million , or 13%, to$32.1 million for the six months endedJune 30, 2022 as compared to$28.3 million for the same period in 2021. The increase was due to higher personnel and other administrative costs, which is consistent with the ongoing growth of our business. General administration and other expense as a percentage of revenue remained flat at 12% for the six months endedJune 30, 2022 and 2021. Depreciation and Amortization. Depreciation and amortization expense increased by$4.4 million , or 280%, to$6.0 million for the six months endedJune 30, 2022 as compared to$1.6 million for the same period in 2021. The increase was mainly due to additional purchases of property and equipment and other definite lived intangible assets. Depreciation and amortization expense as a percentage of revenue was 2% for the six months endedJune 30, 2022 as compared to 1% for the same period in 2021. Interest Expense, Net. Interest expense, net was$0.4 million for the six months endedJune 30, 2022 as compared to$30.0 thousand for the same period in 2021. The increase was mainly attributable to the recognition of additional imputed interest associated with the recognition of deferred royalties and the commencement of additional finance leases relating to online gaming servers as we expand into new jurisdictions. Change in Fair Value of Warrant Liabilities. Change in fair value of warrant liabilities was nil for the six months endedJune 30, 2022 as compared to$41.8 million for the same period in 2021. Gains and losses are primarily attributable to the remeasurement of the liability at fair value and were primarily a result of changes in the underlying price of our Class A Common Stock. The liability was fully settled as ofJune 30, 2021 . Change in Fair Value of Earnout Interests Liability. Change in fair value of earnout interests liability was nil for the six months endedJune 30, 2022 as compared to a loss of$13.7 million for the same period in 2021. Gains and losses are attributable to the remeasurement of the liability at fair value and were primarily a result of changes in the underlying share price of our Class A Common Stock. The liability was fully settled as ofJune 30, 2021 . Income Tax Expense. Income tax expense was$4.3 million for the six months endedJune 30, 2022 and$2.6 million for the same period in 2021. Income tax expense for the six months endedJune 30, 2022 and 2021 related to the profitability of our foreign operations for which both current and deferred taxes are recorded. Income tax expense as a percentage of revenue was 2% for the six months endedJune 30, 2022 as compared to 1% for the same period in 2021.
Seasonality and Other Trends Impacting Our Business
Our results of operations can and generally do fluctuate due to seasonal trends
and other factors such as level of customer engagement, online casino and sports
betting results and other factors that are outside of our control or that we
cannot reasonably predict. Our quarterly financial performance depends on our
ability to attract and retain customers. Customer engagement in our online
offerings may vary due to, among other things, customer satisfaction with our
platform, the number and timing of sporting events, the length of professional
sports seasons, our offerings and those of our competitors (including those not
just in the online gaming industry but also in the entertainment industry more
broadly), our marketing efforts, climate and weather conditions, public
sentiment or an economic downturn. As customer engagement varies, so may our
quarterly financial performance.
Our quarterly financial results may also be impacted by the number and amount of
betting losses and jackpot payouts we experience. Although our losses are
limited per stake to a maximum payout in our online casino offering, when
looking at bets across a period of time, these losses can be significant. As
part of our online casino offering, we offer progressive
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jackpot games. Each time a customer plays a progressive jackpot game, we contribute a portion of the amount bet to the jackpot for that game or group of games. When a progressive jackpot is won, the jackpot is paid out and is reset to a predetermined base amount. Winning the jackpot is determined by a random mechanism. We cannot foresee when a jackpot will be won and we do not insure against jackpot payouts. Paying the progressive jackpot decreases our cash position. Our online sports betting and retail sports betting operations experience seasonality based on the relative popularity and frequency of certain sporting events. Although sporting events occur throughout the year, our online sports betting customers are most active during the American football season as well as during the NBA andNCAA basketball seasons. In addition, the suspension, postponement or cancellation of major sports seasons and sporting events due to COVID-19 may adversely impact our quarterly results. See "- Impact of COVID-19." From a legislative perspective, we are continuing to see strong momentum to legalize and regulate online sports betting in newU.S. jurisdictions. As expected, in many cases these newU.S. jurisdictions are first trying to legalize and regulate online sports betting before considering whether to legalize and regulate online casino. However, given the tax generation success of online casino in markets where it has been legalized, we are also continuing to see strong momentum for online casino in severalU.S. jurisdictions that are looking for additional revenue sources to fund expanding budgets. We operate within the global gaming and entertainment industry, which is comprised of diverse products and offerings that compete for consumers' time and disposable income. We face, and expect to continue to face, significant competition from other industry players both within existing and new markets including from competitors with access to more resources or experience. Customer demands for new and innovative offerings and features require us to continue to invest in new technologies and content to improve the customer experience. Many jurisdictions in which we operate or intend to operate in the future have unique regulatory and/or technological requirements, which require us to have robust, scalable networks and infrastructure, and agile engineering and software development capabilities. The global gaming and entertainment industry has seen significant consolidation, regulatory change and technological development over the last few years, and we expect this trend to continue into the foreseeable future, which may create opportunities for us but may also create competitive and margin pressures.
Liquidity and Capital Resources
We measure liquidity in terms of our ability to fund the cash requirements of our business operations, including working capital and capital expenditure needs, contractual obligations and other commitments, with cash flows from operations. Our current working capital needs relate mainly to supporting our existing businesses, the growth of these businesses in their existing markets and their expansion into other geographic regions, as well as our employees' compensation and benefits. We had$201.7 million in cash and cash equivalents as ofJune 30, 2022 (excluding customer cash deposits, which we segregate from our operating cash balances on behalf of our real-money customers for all jurisdictions and products). OnFebruary 22, 2021 , we announced the redemption (the "Redemption") of all the Company's warrants to purchase Class A common stock ("Class A Common Stock") that were issued to third parties in connection with the initial public offering of dMYTechnology Group, Inc. ("dMY" and such warrants, the "Public Warrants"), which were exercisable for an aggregate of approximately 11.5 million shares of Class A Common Stock at a price of$11.50 per share. During the six months endedJune 30, 2021 , 11,442,389 Public Warrants were exercised at a price of$11.50 per share, resulting in cash proceeds of approximately$131.6 million . We intend for the foreseeable future to continue to finance our operations without third-party debt and entirely from operating cash flows, if any, and proceeds from the Redemption. In connection with the business combination between dMY and RSILP onDecember 29, 2020 (the "Business Combination"), we executed a Tax Receivable Agreement, dated as ofDecember 29, 2020 (the "TRA"), by and amongRSI ASLP, Inc. (the "Special Limited Partner"),Rush Street Interactive, LP ("RSILP"), the sellers in the Business Combination (the "Sellers") and the Sellers' representative, which generally provides for the payment by the Special Limited Partner of 85% of certain net tax benefits, if any, that the Company and its consolidated subsidiaries, including the Special Limited Partner, realize (or in certain cases is deemed to realize) as a result of the increases in tax basis and tax benefits related to the transactions contemplated under the agreement governing the Business Combination and the exchange of certain common units in RSILP retained by the Sellers for Class A Common Stock (or cash) and tax benefits related to entering into the TRA, including tax benefits attributable to payments under the TRA. Although the actual timing and amount of any payments made under the TRA will vary, such payments may be significant. Any payments made under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us and, to the extent that payments required under the TRA are unable to be made for any reason, the unpaid amounts generally will be deferred and 30
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will accrue interest until paid. To date, no material payments under the TRA have been made, and no material payments or accrued payments thereunder are expected in the near future as payments under the TRA are not owed until the tax benefits generated thereunder are more-likely-than-not to be realized. We expect our existing cash and cash equivalents, proceeds from the Redemption and cash flows from operations to be sufficient to fund our operating activities and capital expenditure requirements for at least the next 12 months and thereafter for the foreseeable future. We may, however, need additional cash resources due to changed business conditions or other developments, including unanticipated regulatory developments, significant acquisitions and competitive pressures. We expect our capital expenditures and working capital requirements to continue to increase in the immediate future to support our growth as we seek to expand our offerings across more ofNorth America ,Latin America and worldwide, which will require significant investment in our online gaming platform and personnel, in particular in product development, engineering and operations roles. We also expect to increase our marketing, advertising and promotional spend in existing and new markets, as well as market access fees and license costs as we continue to enter into new market access arrangements with local partners in new jurisdictions. In particular, we are party to several non-cancelable contracts with vendors and licensors for marketing and other strategic partnerships, pursuant to which we are obligated to make future minimum payments under the non-cancelable terms of these contracts. To the extent that our current resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing. If the needed financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to decrease our level of investment in new product or service launches and related marketing initiatives or to scale back our existing operations, which could have an adverse impact on our business and financial prospects. We expect our material cash requirements during the upcoming 12-month period to include$7.5 million of non-cancellable purchase obligations with marketing vendors,$7.7 million of license and market access fees, and$0.4 million of lease payments. In addition, we will continue to pursue expansion into new markets, which is expected to require significant capital investments. We have$61.0 million of additional non-cancellable purchase obligations subsequent to the upcoming 12-month period. Management believes our current cash holdings and, if necessary or desirable, various avenues available to pursue funding in the capital markets will suffice to fund these obligations.
As of
Debt
As ofJune 30, 2022 , we had no debt outstanding. We have an outstanding letter of credit for$1.0 million in connection with our operations inColombia , for which no amounts have been drawn as ofJune 30, 2022 .
Cash Flows
The following table shows our cash flows from operating activities, investing activities and financing activities for the six months endedJune 30, 2022 and 2021: Six Months Ended June 30, ($ in thousands) 2022 2021 Net cash used in operating activities$ (61,264) $ (10,423) Net cash used in investing activities (9,914) (5,263) Net cash (used in) provided by financing activities (455) 127,329
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(389) (888)
Net change in cash, cash equivalents and restricted cash
Operating activities. Net cash used in operating activities for the six months endedJune 30, 2022 increased by$50.9 million to$61.3 million , as compared to$10.4 million during the same period in 2021. The increase reflects a greater period-over-period net loss totaling$66.6 million and an$8.8 million increase of cash used resulting from changes in working capital, which was partially offset by an increase in non-cash expenses totaling$24.7 million . The increase in non-cash expenses was driven primarily by a lower impact of changes in fair value of warrant liabilities totaling$41.8 million , which was partially offset by a decrease in share-based compensation expense totaling$8.4 million and changes in fair value of earnout interests liability totaling$13.7 million . The remaining increase in other non-cash expenses totaled$5.0 million . 31
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Investing activities. Net cash used in investing activities for the six months endedJune 30, 2022 increased by$4.6 million to$9.9 million , as compared to$5.3 million during the same period in 2021. The increase reflects higher period-over-period cash paid for internally developed software costs totaling$3.8 million , an increase in cash paid for asset acquisitions totaling$1.5 million and an increase in property and equipment purchases totaling$0.9 million , which was partially offset by a decrease in long-term time deposits totaling$0.3 million and cash paid to acquire gaming licenses totaling$1.3 million . Financing activities. Net cash used in financing activities for the six months endedJune 30, 2022 was$0.5 million , while net cash provided by financing activities for the same period in 2021 was$127.3 million . The period-over-period difference reflects lower proceeds from the exercise of Public Warrants totaling$131.6 million , partially offset by less cash used for distributions to non-controlling interest holders totaling$0.3 million and repurchases of Class A Common Stock totaling$3.5 million .
Critical Accounting Policies and Estimates
We have prepared our unaudited condensed consolidated financial statements in accordance with GAAP. In doing so, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses during the reporting period. Management bases estimates on historical experience and other assumptions it believes to be reasonable under the circumstances and evaluates these estimates on an on-going basis. Actual results may differ from these estimates. Management has discussed the development, selection and disclosure of these estimates and assumptions with the Audit Committee of the Board. There were no material changes during the quarter endedJune 30, 2022 , to the critical accounting policies and estimates discussed in our Annual Report. For a more complete discussion of our critical accounting policies and estimates, refer to our Annual Report.
Emerging Growth Company Accounting Election
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 ("JOBS
Act") exempts emerging growth companies from being required to comply with new
or revised financial accounting standards until private companies are required
to comply with the new or revised financial accounting standards. The JOBS Act
provides that a company can choose not to take advantage of the extended
transition period and comply with the requirements that apply to non-emerging
growth companies, and any such election to not take advantage of the extended
transition period is irrevocable. We are an "emerging growth company" as defined
in Section 2(a) of the Securities Act of 1933, as amended, and have elected to
take advantage of the benefits of this extended transition period. We remain an
emerging growth company and are expected to continue to take advantage of the
benefits of the extended transition period. This may make it difficult or
impossible to compare our financial results with the financial results of
another public company that is either not an emerging growth company or is an
emerging growth company that has chosen not to take advantage of the extended
transition period exemptions for emerging growth companies because of the
potential differences in accounting standards used.
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